Dividends General

Lessons From My First Year of Dividend Investing

After one year of being a dividend investor, here are the lessons I’ve learned

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One year ago, on 9/24/22, I started this blog and started dividend investing. Back then, some of the stocks I first bought were $SLG, $T, and $GNL. Of those three I only still hold $T. Over the past year, I’ve worked on building my own investing philosophy and putting together a dividend portfolio that will help me reach financial freedom (you can read about that strategy here). My strategy didn’t come to me overnight, instead it was the result of a long process and still continues to change.

What I really like about dividend investing is that you are never done learning. There is always a new situation that could generate new results in your portfolio. There’s always new positions that you can pick up, or let go of. As the economy changes, so do your thoughts on certain holdings and approaches to investing. It is never a one a done. After my first year of dividend investing, here are the most important investment lessons I’ve learned:

#1 I Love Receiving Money in my Account

Every week, I receive at least one dividend and I get to see my account naturally grow bigger. Receiving these payouts is a great feeling. Week after week, these payouts start to compound and have not stopped growing.

In my first year of investing, I raked in almost $285 in dividends. I expect to get close to $700 in my next year. Today, my portfolio is roughly a $10,000 portfolio that has an annual income of $504. This is almost a 5% yield. It is a modest amount so far, but it will greatly increase over the years to come.

#2 It’s Easier to Follow Dividend Stocks

When you buy a dividend stock, you usually buy a sound & healthy company. Therefore, following quarterly results is usually more than enough to make sure one stock doesn’t slip through the cracks and start rotting. From my experience with different types of investing, different strategies usually require much more monitoring.

#3 Don’t Chase High Yield

Everyone always says don’t chase yield. But I believe every dividend investor will make this mistake at least once, even if they are familiar with the saying. I made this mistake myself with $UWMC. It had nearly a 10% yield when I started buying into it and I made a substantial position. I lost more than 40% of that position as I continued to buy into its dips and hold on. I eventually got out, but this sucker still hasn’t turned around.

The lesson to learn from this is that high yield investments always carry limited growth potential and/or higher risk. There is a reason why you get a higher yield and it’s not just for shits n giggles.!

#4 Yield Doesn’t Matter if you Select the right pick

To be honest, I still haven’t fully committed to this lesson, but I know its right! At first, I used to select only companies paying over 2% in yield. It was my way of identifying “good dividend stocks” amongst other factors. I used to ignore lower yielding companies because I wanted to start having larger dividend payouts sooner.

I have since made exceptions with holdings like $MSFT, $EA, and $SPY. There’s lots of gems out there with low yields. Take AAPL for example, low yield but the price has appreciated like crazy.

The dividend yield is not the most important metric when you select a dividend stock. Instead, I look for companies with a solid business and the ability to increase its payout consecutively for many years to come.

#5 Patience is the Most Important Investor’s Asset

In my first year so far, I’ve bought several stocks that didn’t go the right way immediately. Starbucks ($SBUX), 3M ($MMM), Intel ($INTC) are great examples of this. In fact, a majority of my holdings are in the red right now. But some, like Starbucks, stagnated before turning green.

Sometimes you get lucky and your stock keeps going up the minute you buy it. But most of the time, the result of your trade is not instantaneous. On the other hand, patient investors will receive their rewards sooner or later. Especially with starting my portfolio on the cusp of a bear market, most things will not turnaround for some time.

I am excited to finish out this year with my current portfolio, as I believe I have a lot of great holdings. I also know I will have much more to learn in the coming years. It will be interesting to see how my portfolio changes and reacts as this bear market continues. Everyone says that wealth is made in recessions, so I am excited to continue putting my money to work and see what it can grow into.

Tell me, what have you learned from dividend investing in the current bearish market?

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